A common question people have when we initially meet is, “How do you develop an investment portfolio?”
Many people have a basic understanding of the difference between income and equities but are unsure of how to put it all together.
When approaching retirement or in retirement, there are six key factors to developing a globally diversified portfolio.
Six Key Factors to Developing a Globally Diversified Portfolio
- Strategic Asset Allocation
- Tactical Asset Allocation
- Specific Investments and/or Money Managers
- Risk Management
- Taxes
- Fees
REVIEW
- Strategic Asset Allocation
Whole books have been written about this subject; however, simply, strategic asset allocation is your long-term allocation between bonds and equities. This also includes how much you would invest in Canada, the US, and internationally for both bonds and stocks.
The reason you invest outside of Canada is that different countries and companies do well at different times, so by investing outside of Canada, you can reduce your risk.
Resource: Why invest in the stock market?
2. Tactical Asset Allocation
Tactical asset allocation is the shorter-term allocation changes based on current market conditions. It is not market timing where you get out of one asset class altogether, but decisions to adjust your current allocations.
Resource: How to Navigate Market Downturn for Retirees
3. Specific Investments
There are two basic ways to select your investments:
- You can select your own individual stocks and bonds, ETFs or mutual funds to build and manage your own portfolio.
- You can decide to use a CFP® or CERTIFIED FINANCIAL PLANNER to generate a professionally managed money approach.
ETFs are similar to mutual funds in that they can be a basket of securities, such as stocks and bonds; however, they’re traded directly on a stock exchange, which means they’re bought and sold like stock. Many track the performance of a specific stock market index and/or asset class.
Resource: What are the different investment classes?
4. Risk Management
Risk management are tools professional money managers use to reduce the risk of a portfolio. The first level of risk management is creating a diversified asset allocation.
Another tool they can use is currency hedging to protect your investment from dramatic swings in the currency of another country versus the Canadian dollar.
5. Taxes
The last key factor is taxation. You’ll want your investments to be held in a tax-effective manner, and you also want to organize your investments in a way to reduce the amount of taxes you have to pay.
You must consider what type of account you have (registered or non-registered), and the taxation of the type of income the investments generate.
Resource: Tax-efficient withdrawals for retirees
6. Fees
The fees for your investments can be broken down into three main areas:
- Custodial Costs
- Investment or Product Costs
- Advisor Cost for advice
Custodial costs would be the annual Trustee fees you have for your Registered plans.
Investment or Product costs would be the costs to buy and sell individual securities and/or the management fees for mutual funds and ETFs.
Advisor cost for service would be the fees you pay to your advisor for advice.
Like all things in life, you must get value for the fees you pay. You could create your own retirement and income plan, invest yourself and save on the advisor fees, or hire a CFP® or CERTIFIED FINANCIAL PLANNER. It really depends on what you’re looking for and your own expertise.
Resources:
- What should you expect in regular meetings with your advisor?
- Your Retirement Road Map: How to make the Transition to Retirement
SUMMARY
By utilizing the six key factors to develop a globally diversified portfolio, you can increase your opportunity to create the income you require for your retirement.
Resource: Download our White Paper: Your Retirement Road Map: How to make the Transition to Retirement HERE
For more information, you can refer to Preserving Wealth: The Next Generation – The definitive guide to protecting, investing, and transferring wealth by Jack Lumsden, MBA, CFP®.
For your FREE E-Copy of Preserving Wealth, CLICK HERE
This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see me for individual financial advice based on your personal circumstances. The information provided is for illustrative purposes only. Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. Please read the Fund Facts and consult your Assante Advisor before investing.
Insurance products are services provided through Assante Estate and Insurance Services Inc.
